GBP/USD – Bullish Signal; EUR/GBP Retreats from Resistance

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GBP/USD - Bullish Signal; EUR/GBP Retreats from Resistance

The sterling pound is in a bullish mood this week. We are seeing GBP/USD strength, but a big part of that is due to USD-weakness. We are also starting to see EUR/GBP retreat, which reflects pound strength.

GBP/USD Daily Chart 10/17
gbpusd daily chart 10/17

(click to enlarge)

GBP/USD has been bearish since the year’s high at 1.7191 made in July. This week, after making a fresh low on the year at 1.5875, the pair is rebounding.

GBP/USD 4H Chart 10/17
gbpusd 4h chart 10/17

(click to enlarge)

In the 4H chart we can see that this week’s rally has pushed above its 50-period SMA, and is now threatening to break above the 100-period SMA and a falling trendlien from September’s high of 1.6524. We should also note that during the 10/14 period, we saw some volatility in both directions, which created tails to the upside and downside. This created a local price range, and the market eventually decided to push higher, a sign of bullish bias building up. Also note that today’s price action bounced off the 50-period SMA, a bullish “slingshot” signal.

In the short-term, the next resistance pivot at 1.6226 could be key. If the market breaks this level, it will also clear a falling trendline that comes down from the 1.7191 high in July. This would open up further bullish outlook and signal that the downtrend since July is over and that the GBP/USD is in a period of consolidation/correction.

EUR/GBP Daily Chart 10/17
eurgbp daily chart 10/19

(click to enlarge)

In October, EUR/GBP rebounded from a low of 0.7761 to about 0.8040 this week. Note in the daily chart that the pair has taken away from bearish bias as it crossed above the 100-, and 50-day SMAs while dragging the daily RSI above 60. However, price is now testing a multi-month resistance going back to June.

Yesterday’s bearish candle matched the strong bullish candle that came up to this resistance area. This shows bears are strong here but the question is whether that is enough to keep EUR/GBP bearish as it has been since the March and 2014 high at about 0.84. The euro-pound will have to clear below 0.7874 which is at the bottom of a key support/pivot area, to revive the bearish trend. A hold above this and a return above 0.79 would keep EUR/GBP in the current consolidation/correction phase.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.